House to Home

While this blog post is directed to those who have served their country, I think there is something to be learned by all home buyers. All people, no matter their background, make mistakes when buying their home—whether this is the first time or the sixth. Perhaps after reading through some items that are easily overlooked you will save yourself some frustration and even money!

If you’re shopping for a home loan, nothing beats discussing loan options with one of our skilled and knowledgeable mortgage bankers at SMC, but knowing types of loans at a glance isn’t a bad idea either.

Down payment requirements can be very intimidating, and trying to save for a 20% down payment can seem impossible. Luckily, the secret is out – you don’t actually need to have 20% for a down payment. Because, really, who has an extra 20 or 40 grand lying around?

Here are your options:

Go for an FHA loan – FHA loans, or Federal Housing Administration loans, are not actually funded through the FHA, they are simply ensured by the FHA. The FHA insurance covers the lender in the event that a borrower should default, and because of that, these loans are considered less risky for lenders. The FHA loan comes with a low interest rate and as little as a 3.5% down payment.

Check out a USDA loan – USDA loans are issued through the U.S. Department of Agriculture and are great for borrowers who are unable to save for a down payment because they require NO money down. Yes, that’s right. These loans offer 100% financing. What’s the catch? Well, there is none really. Though borrowers must meet location and income requirements, the location requirements expand much further than the countryside. In fact, some suburbs that surround cities fall within the limits.

Try a contingency – This is only applicable to those who are already home owners. Essentially, a contingency is a clause in your contract that states that a percentage of the equity in your current home, will go toward the down payment of your new home, contingent upon your first home’s sale.

Are you a veteran? The VA loan allows veterans and qualifying spouses to get a 0% down mortgage.

Even if you can’t come up with a down payment, you do have options, and you can still purchase a home. If you’re interested in purchasing your first home, check out our First Time Home Buyer’s Study Guide to learn about the process.

In a word, no. Low and no down payment loan programs have often gotten a bad rap – with notions that those who are often procuring them, are unable to actually afford a home and are likely to default. Some even say that it was low and no down payment loans that caused the housing bust, but that is just part of the misconception about low and no down payment loans and what effect they have on our economy.

After the housing bust, low and no down payment loans became incredibly scarce, if not obsolete, and it’s taken a while for them to return to the mortgage world. Now that they have, let’s address a couple of misconceptions about them:

They caused the housing bust – it was subpar lending standards and a lack of underwriting stringency caused the housing bust.

People who can’t afford a down payment won’t be able to make payments – We find that it’s quite the opposite. Many skeptics believe that home owners with negative equity are more likely to walk away from their home, when in fact, according to a Zillow study last year, almost 10 million people were living in homes with negative equity.

They are too risky – There are lending standards for low and no down payment loans just like there are for FHA loans. Borrowers are still required to have a certain income-to-loan ratio as well as a minimum credit score.

The default rate is high – VA loans, which are one of the most popular zero down payment loans, had a default rate of 16% for loans originated in 2007 (the worst year), whereas, FHA loans (which require a minimum of 3.5% down) had a default rate of 36%.

Low and no down payment loans have the potential to help the economy recover. By providing more people with the opportunity to buy a home rather than continue renting, the housing market will continue to grow and consumers will continue to invest in housing, and in the economy as a whole.

Want to know more about Stockton Mortgage’s low and no down payment loan options? Talk to a mortgage banker today – (502) 227-1100.